Auto stocks including General Motors and Stellantis tumbled as manufacturers awaited President Trump’s latest tariff announcement on Wednesday. The Dow Jones U.S. auto manufacturers index dropped 5% while Elon Musk’s Tesla was down 5.6%. Industry estimates pegged the price increases as high as $10,000 due to the impact from the levies.
President Trump pushed ahead with new tariffs on foreign-made cars and light trucks of 25%, he announced from the Oval Office on Wednesday. The new tariffs will launch on April 2 “and we’ll start collecting on April 3,” said Trump, adding the levies would not hit cars built in the U.S.
“This is going to lead to the construction of a lot of plants, in this case, a lot of auto plants,” said Trump during the press conference. Trump said he expected the tariffs would fuel an increase in auto manufacturing in the U.S. that would push consumer prices down. He also suggested the White House might move ahead with plans to allow consumers to deduct interest payments on auto loans from tax bills if the car is manufactured in the U.S.
“I think our automobile business will flourish like it’s never flourished before,” said Trump. He said “very strong” policing would go along with the 25% auto tariffs. “This is permanent. 100%,” said Trump.
The tariffs were initially set to take effect on March 4, but Trump later announced adjustments on imports from Canada and Mexico to lessen the squeeze on American automotive manufacturers and give them time to prepare. The administration had imposed 25% import levies on goods from Canada and Mexico but allowed the pause for cars and goods traded through the North American USMCA trade agreement. Trump then set a deadline of April 2 for announcing additional reciprocal tariffs and tariffs on cars imported into the U.S., but he reversed course and dropped the tariff announcement a week early.
The one-month grace period on the 25% tariffs on cars and car parts came after Trump talked to representatives from Ford, General Motors, and Stellantis. Trump also expanded the grace period for other goods from Mexico and Canada. At the time, Trump told companies to “start investing, start moving, shift production here.”
However, experts have said that extending tariffs to auto parts with steel and aluminum will lead to hefty costs for consumers, auto manufacturers and their suppliers. Furthermore, adjusting a manufacturing supply chain often takes years, not weeks, experts have said. Roughly one in five cars and trucks sold in the U.S. were built in Canada or Mexico, the Associated Press reported. In 2024, the U.S. imported $79 billion worth of vehicles from Mexico and $31 billion more from Canada. As for auto parts, $81 billion worth of imports originated in Mexico and $19 billion from Canada.
“The tariffs announced today will harm — not help — the US auto industry, endanger many American jobs, and lead to a hollowing out of auto manufacturing in the United States,” John Murphy, Senior Vice President at the U.S. Chamber of Commerce, told Fortune. “These auto tariffs come on top of tariffs on steel, aluminum, and goods from Canada and Mexico. With additional reciprocal tariffs expected on April 2, the stacked tariffs on the auto sector are formidable.”
Ken Kim, a senior economist at KPMG, wrote in a Wednesday note that orders for vehicles and parts had jumped 4% in February, the most significant rise in three years. The rise was due to front running in the auto industry to lock in prices before the tariffs could take effect. Industry estimates pegged the price increase on new vehicles in a range from about $2,000 to $10,000 or more, which would represent a 20% increase on the average transaction price of $48,500, Kim wrote.
“Consumers are already reeling from elevated inflation,” Kim wrote. “Talk about sticker shock.”
Overall, spending dropped 0.3% in February, the most meaningful decline in seven months, according to Kim, and it’s due to the uncertain economic outlook.
“The drop could be an early indication that business leaders are pulling back on future capital spending due to the uncertain tariff environment.
According to Scott Lincicome, vice president of general economics at the libertarian think tank Cato Institute, automotive tariffs would not only raise prices on cars, but they would hurt U.S. based automakers. It’s long been acknowledged by auto industry experts that free trade and investment have fueled growth and stability of the auto industry since the 1990s, he wrote.
“This is why, when Trump threatened new tariffs on automotive goods in 2018, basically every major U.S. business group—the Alliance of Automobile Manufacturers (which includes Detroit automakers), the Association of Global Automakers, the Motor and Equipment Manufacturers Association, the National Association of Manufacturers, the U.S. Chamber of Commerce, and the Business Roundtable—opposed them, as did all the automakers located here.”
This story was originally featured on Fortune.com
